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The Business of Savings
A Good 401(k) Offers US Treasury Bond Funds Too!
It’s good news that the market has rallied this year making up a lot of ground from the big drops in late 2008 and early 2009. The down times exposed the need to ensure your 401(k) plan offers funds that are geared to produce income. These types of investments are called fixed income or bond funds. US Treasury bond funds hold treasuries with a specific time horizon (e.g. 1-3 years, 7-10 years, etc…) and are a missing option for some 401(k) plans. No fund is completely risk-free, yet these types of funds can play an important role in stabilizing your portfolio.
At ShareBuilder 401k, our cash and bond offerings include a money market, three US Treasury index bond funds, and one aggregate index bond fund which holds government and corporate bonds.
One of the bond funds is a TIPS index fund (Treasury Inflation-Protected Securities adjust underlying securities to counter inflation) so you can hedge against inflation risk too. Treasury funds can be a nice alternative for those that are not ready to be exposed to the stock market as well as a good place to have more of your money as you near retirement.
So you might be asking how much is the right amount to invest in bonds versus stocks? While there is no right answer for everybody, a rule of thumb for your retirement account is to invest your age in fixed assets and the rest in stock funds. If you are 55 years of age, you’d allocate 55% of your savings in bond and/or cash funds and 45% of your savings in stocks.
If you are not sure which funds to select, choosing one of our model portfolios can be a great way to start. Our model portfolios funds are designed for different risk tolerance and time horizons to make it easier to find the investments that best fits your goals.